Hutchison loses $410m, all to plan

The grand plan. . .is to spend another $1.3 billion getting customers to sign up to 3. Photo: Wade Laube

Losses at Hutchison Telecommunications more than doubled to $410 million for the 2003 financial year ending December 31, while revenues were up 50 per cent to $340 million.

The red ink is expected to increase again next year, as the start-up costs of its new $3 billion mobile business, 3, hit full stride.

The company said it was still on track to break even by 2006 and even offered a customer-acquisition target for the first time, forecasting 1 million mobile users by the end of 2005.

"Losses in 3 are consistent with our business plan and, with our rapid growth in 3 and Orange, we are working towards 1 million mobile customers across the two businesses by the end of 2005," Hutchison chief executive Kevin Russell said.

The big question for the mobile industry is whether Hutchison has gained the critical mass of customers necessary to force a competitive response from the mobile industry's giants, Telstra and Optus.

The answer so far appears to be no.

"I think they are keeping a watching brief on 3," said one analyst who did not wish to be named.

UBS analyst Tim Smeallie said that comments from Hutchison's management suggested the company was picking up subscribers from Vodafone rather than Telstra or Optus.

Telstra has already shown it is serious about maintaining its current market share by cutting its broadband prices this week to levels that are now the most competitive in the industry.

Competition in the mobile arena is about to intensify, with Hutchison planning to spend an estimated $1.3 billion to acquire customers. The company said that losses would peak over the next two financial years as it "builds a revenue" base.

Hutchison emphasised that it was prepared to endure whatever losses were necessary over the coming years to meet its objective of making 3 self-funding by 2006.

"2006 is the only thing that is going to be relevant," Mr Russell said.

Goldman Sachs JBWere forecast that losses would peak at $455.6 million next year, before falling to $349 million in 2005. But yesterday's loss was bigger than the market consensus of $340 million, and that may force analysts to revise their forecasts.

Despite network glitches and handset shortages, 3 managed to acquire 115,000 customers in its first 10 months of operation, according to Hutchison. Monthly average revenues per user were well ahead of the competition at $80, the company claimed.

Hutchison said it added 114,000 new customers in the second half, including the Orange business, and expects to exceed these numbers in the current half, and in the second half of this year.

Prior to yesterday's result, Citigroup Smith Barney estimated that Hutchison would have 285,000 customers for 3 by the end of this year.

Investors were not phased by all the red ink, sending its shares up 2c, or 7 per cent, to 30c.

Analysts played down the significance of the share price movements, saying there were no fundamentals to drive the share price.